July 28, 2017
Freedom of speech is a hot topic in community associations. Some of these First Amendment disputes concern the freedom of a property owner to display flags, signs or symbols on their property in the face of board opposition. Conflict between association leadership and members over free speech also spreads into cyberspace. One such case recently made its way up to Florida’s Fifth District Court of Appeals. On July 21, 2017, the appellate judges reversed part of the trial court’s ruling in favor of the association. Howard Adam Fox had a bad relationship with certain directors, managers and other residents of The Hamptons at MetroWest Condominium Association. Several lessons here for anyone who communicates about associations on the internet.
The July 21, 2017 appeals opinion does not describe the social media communications and blog posts that gave rise to the dispute. I imagine that they consisted of personal attacks that may have been alleged to contain slanderous material. The details are left out of the opinion, probably with a sensitivity towards the persons discussed by Mr. Fox online. In general, I do not like the spreading of false, slanderous statements in personal online attacks. To the extent that Fox had legitimate grievances about goings on at the Hamptons at MetroWest, the character of his criticisms seems to have eclipsed any merit. There are usually better ways of solving problems than angrily venting them in online forums.
The board filed a complaint seeking a court order prohibiting Mr. Fox from, “engaging in a continuous course of conduct designed and carried out for purposes of harassing, intimidating, and threatening other residents, the Association, and its representatives.” The association alleged Mr. Fox violated the governing documents of the condominium by his blog posts and social media activity. The court granted an ex parte injunction prohibiting the alleged wrongful conduct. This means that the judge initially considering the case did not wait for Mr. Fox to make a response to the lawsuit. Later, Mr. Fox and the board reached a written settlement wherein Fox agreed to cease certain activities. The final order in the court case incorporated the terms of the settlement. Making terms of the settlement a part of the final order means that the association does not have to start its lawsuit all over again to enforce the deal. They just need to bring a motion for contempt if Fox violates the order. Howard Fox represented himself and did not have an attorney in the trial court and appellate litigation.
Soon thereafter, the association filed a motion for contempt, alleging that Fox violated the settlement and final order. In the contempt proceeding, the trial court went further than simply enforcing the terms of the settlement. The judge forbade Fox from posting or circulating anything online about any residents, directors, managers, employees, contractors or anyone else at the Hamptons. The judge required him to take down all current posts. If someone asked him on social media about his community, and he wanted to respond, he would have to call them on the telephone.
Fox appealed this contempt order on the grounds that it violated his First Amendment rights under the U.S. Constitution. The Fifth District Court of Appeals agreed. The trial court’s ruling was what is called a “prior restraint.” The contempt order did not punish him for past wrongful actions. It looked permanently into his future. Prior restraints against speech are presumptively unconstitutional. Temporary restraining orders and injunctions are “classic examples” of prior restraints.
The appellate court focused on the public nature of the type of speech the lower court order forbade. This makes sense. While an association is private, it is a community nonetheless. There is no real conceptual difference between online communications and other types of speech. Matters of political, religious or public concern do not lose their protected status because the content is insulting, outrageous or emotionally distressing. In a condominium, many matters of community concern could easily be characterized as political, religious or public. Federal, state or local rulemaking may impact the common business within the association. While community associations are “private clubs,” the things that members communicate about are mostly public in the same sense as town or city ward communities. To paraphrase this opinion, “hate speech” is protected by the constitution, unless certain very limited exceptions apply, such as obscenity, defamation, fraud, incitement to violence, true threats, etc.
This Florida appellate court found that the trial court violated Fox’s First Amendment rights when it ordered the “prior restraint” against him making any posting of any kind online related to his community. On appeal, the court preserved the rulings finding contempt for violation of the settlement agreement. So, Fox must still comply with the terms of the settlement. The case will go back down for further proceedings unless there is additional appellate litigation. Nerd-out further on the constitutional law issues in this case by reading the useful Volokh Conspiracy blog post on the Washington Post’s website.
The appeals court did not find that any covenants, bylaws, settlements, or other association agreements violated the First Amendment. This opinion does not mean that people cannot waive their rights in entering a private contractual relationship with each other.
Usually, only “state actors” can be found to violate the Constitution. An association is not a “state actor” because it is not really governmental. Here, the “state actor” in the constitutional violation was the trial-level court and not the association. What difference does it make? Ultimately, the courts, review the validity of board actions, determine property rights and enforce covenants. The association board requested relief that apparently lacked support in the covenants or the settlement agreement. To protect their rights, owners must understand when their board is doing something or asking for relief outside of its contractual authority.
There is one final point that the court opinion and the Volokh Conspiracy blog do not discuss which I want my readers to appreciate. Owners of properties in HOAs do not simply have a right to communicate with each other and the board. They have an obligation. The covenants, bylaws and state statutes provide for the board to be elected by the members. Members can amend governing documents by obtaining a requisite of community support. The non-director membership is supposed to be an essential part of the governance of the association. If the members and directors do not have an effective means to communicate with each other, then the community cannot function properly. Community associations can have thousands of members and residents. The may cover the acreage like that of a town or small city. The internet, in both password protected and public sites provides a convenient way for information and messages to be shared. Limits on an owner’s ability to communicate with her board or other parties to the “contract” prejudices her rights under the governing documents. I do not like covenants or bylaws that limit an owner’s ability to obtain information or communicate concerns within the governance of the association. Donie Vanitzian recently published a column in the LA Times entitled, “Freedom of Speech Doesn’t End Once You Enter a Homeowner Association.” She discusses proposed California legislation to enshrine owners’ rights to assemble and communicate with each other about community concerns. Ms. Vanitzian makes an important point that because speech may be deemed “political” should not justify management suppression. Having rights to participate in the meetings of one’s HOA without the right to talk about what is going on is like owning land deprived of any right of way or easement to the highway. While the new Florida opinion does not discuss this point, it is consistent with the basic values of the First Amendment.
For Further Reading:
May 14, 2015
When I was in grade school, one of the most discussed films was The Terminator (1984). Long before he became the “governator” of California, Arnold Schwarzenegger starred as a cyborg from 2029. A world-dominating cloud computing program sent the Terminator to assassinate the future mother of the leader destined to save humanity. Growing up in a family with four kids, my parents didn’t take us to the theater too often, especially ones like that. I initially learned about the Terminator through oral accounts from my classmates. In 2015, we are now about halfway to the date of the fictional dystopia that this monster came from. Luckily, we don’t have to deal with time-traveling robotic assassins yet. While this movie was science fiction, it was popular because it triggers fight-or-flight emotional responses from its audience.
In the world of condominiums, the threat of ownership termination creates fear, hardship and uncertainty. It is the job of owner’s counsel not to defeat robots but to provide counseling and advocacy to protect hard-earned property rights.
What is condominium termination? One of the unique features of condominium law is that under the law of many states, including Virginia, a super-majority of unit owners have the right to sell all of the units and common areas to an investor without the consent of the dissenting owners and directors. Condominium owners share walls, floors, ceilings, roofs, structural elements, and foundations with their neighbors, and these things can all fall apart. It makes sense to have a legal mechanism to address dire situations where the entire condominium can be liquidated so owners can cut their losses.
These legal procedures typically start with a super-majority, usually it is around 80%, adopting a formal plan of termination. Usually the Board of Directors of the association becomes the trustee of all of the property in termination. The Board hires appraisers to determine the fair market value of the individual units. The trustee enters into a contract with a purchaser for all of the real estate. The mortgage lenders, attorneys, settlement agents, appraisers, unit owners, etc. are all paid out of the proceeds of the sale to the investor. The termination provisions of the Condominium Act and the governing documents of the association provide framework for the process. On paper, the concept of condominium termination sounds like a reasonable accommodation for a super-majority consensus to address an extreme situation.
Unfortunately, now investors use the condominium termination statutes in ways that were probably not anticipated by the legislatures. Prior to the collapse of the real estate market in 2008, investors and developers converted many apartment buildings and hotels to condominiums. When the condominium market deteriorated, many associations found themselves with one investor owning a large number of units. The “bulk owner” controlled the association through its super-majority votes in owners meetings and on the board of directors. Certainly a less than ideal situation, especially for owner-occupants.
The bulk owners discovered the condominium termination statute. With their super majority votes, they had a legal theory upon which to sell all the units, including those of the minority owners to an investor, usually a business affiliate of the same bulk owner. Because the bulk owner controls the board of directors, they influence which appraisers calculate the respective values of the units. They also control the total purchase price where the bulk owner is, practically speaking, selling everything to itself.
The potential for self-dealing and abuse of property rights is obvious. The bulk owner naturally wants the unit appraisals and the overall purchase price to be low, to make the transaction more profitable. The governance of the association provides no real checks and balances or oversight because of the super-majority interest. Many associations use the flow of documents and financial information strategically. In adversarial situations, it is common to make only the legally-minimum amount of disclosures. In terminations, individual owners are left wondering what is happening, why and what rights they have, if any.
In The Terminator film, the bodyguard for the human target of the robot explains to her: “Listen, and understand. That terminator is out there. It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear.” Unassisted by counsel, condo unit owners have a frustrating time trying to communicate with the other side in termination proceedings.
According to the Florida Department of Business and Professional Regulation, since 2007 there have been 279 condominium terminations in the Sunshine State alone. See May 4, 2015, Palm Beach Post, “Condo Owners Win Protections, but Do They Go Too Far?” Faced with public outcry over loss of their homes or retirement income at grossly inadequate compensation, the Florida legislature recently passed HB643 to reform the condominium termination statute. While I am not a Florida attorney, I have a few observations:
- The bill continues to allow termination of the condominium without a court proceeding. I would support legislation that would forbid non-judicial condominium terminations without direct court supervision, unless 100% of the owners sign off.
- Owners get an option to lease “their” unit after termination. In certain circumstances, they may qualify for relocation expenses. For an owner suffering a financial hardship through loss of their home or rental property, for some this may seem to add insult to injury.
- Qualifying owners may receive their original purchase price as compensation. This may not help everyone, because buyers normally seek the lowest purchase price. Owners don’t buy condos high in anticipation of a termination. See April 27, 2015 South Florida Business Journal, “Florida Bill Could Make it Tougher for Developers to Terminate Condo Associations.”
- The reform provides special protections for mortgage lenders designed to avoid situations where the borrower would be left with a deficiency on the loan. This doesn’t help owners who maintained responsible loan to value ratios.
- The bill strictly limits the ability of homeowners to contest the validity of the termination and the adequacy of the compensation. For example, the owner must petition for arbitration within 90 days of the termination. This is dramatically shorter than most limitation periods for legal claims. The new statute also limits the issues upon which the owner may contest the termination to the apportionment of the proceeds, the satisfaction of liens and the voting.
This statute revision provides additional detail about the respective rights of bulk and individual owners in condominium terminations. Unfortunately for the individual investors, it continues leaving the procedures (largely) self-regulated by the bulk investors and their advisors. The termination provisions in each state are different. Other state condominium acts may not address bulk ownership like Florida. Virginia’s hasn’t been revised since the 1990’s.
In order to terminate a marriage, corporation or other legal entity in a situation where the parties are deadlocked, usually the party seeking termination must file a lawsuit. If there is more than one owner on a deed to real estate, absent an agreement to the contrary, a suit must be filed before the parcel can be sold or sub-divided. Condominium terminations remain one of the few circumstances where super-majority owners have a procedure to self-deal in the property rights of minority stakeholders with little oversight.
If you own an interest in a condominium unit and received a notice indicating that another owner has proposed termination to the association, contact a qualified attorney immediately to obtain assistance to protect your rights. The application of state law and governing documents to the facts and circumstances are unique in each case.
I’ll be back (to this blog)!
photo credit: Richmond Skyline from 21st and East Franklin at Dusk via photopin (license)
February 5, 2015
A property association’s board of directors has the controversial power to issue and enforce fines against its members for rule violations. When an owner receives a threatening notice from the association, it is not always clear what options are available other than to simply obey the demand. This blog post summarizes the process of association rule enforcement and homeowner rights to protect their interests.
When an investor creates a new condominium, townhouse or detached single family home development, he usually makes them subject to covenants to be enforced by an association. The investor files covenants in the county land records, placing all future purchasers on notice that owners of homes in the development are subject to the covenants, bylaws, rules and regulations of the association. Virginia courts interpret the legal relationship between the association and the owner like a contract. There is a hierarchy of authorities defining the respective rights of the associations and owners:
- State Law. An Association must follow the Condominium Act or the Property Owners Association Act. The covenants, rules and regulations may not contradict state law except where those statutes may allow variance from their provisions.
- Association Instruments Recorded in Land Records. This means declarations, covenants, bylaws, amendments, etc. These documents control the governance of the association and its powers to adopt rules and fine owners.
- Resolutions, Rules and Regulations. State law and the covenants and bylaws set out the association’s powers to adopt rules. The rules and regulations are subject to both state law and also the recorded covenants and bylaws. The power to adopt and enforce rules is held by the board of directors, who answer (at least on paper) to the owners in exercise of their own voting rights. Sometimes it can be difficult for an owner to determine which documents are formally adopted rules and which are “policy documents” published by some individual with the intent that the owners follow them but that don’t carry the authority of a formal rule. This is why the minutes and resolutions of the board are important.
The laws, land records and resolutions are all separate, sometimes contradictory documents that speak to an association’s board of director’s authority to fine owners. The board’s notices of an alleged rule violation can be confusing. When threatened with a fine, what strategies are effective for a homeowner to protect her rights? The facts and circumstances of each case are different, but three strategies may be applied in a variety of situations:
- Keep Property Records. A homeowner should maintain files (either in a paper filing system or on a computer) of documents from the purchase of the home and all association documents such as covenants, rules, regulations, resolutions or correspondence from the property manager or board members. In the event of a dispute, these files may be necessary to support the homeowner’s position. Also keep records of all estimates, contracts, purchase orders, invoices, payments for all repairs and maintenance to the property. In general, homeowners who keep good files tend to have fewer legal disputes and resolve them more easily and favorably than those who don’t.
- Build Rapport with Neighbors. Whenever possible, have as good relations with one’s neighbors as possible given the personalities involved. Amicable relationships create mutually beneficial alliances (This does not necessarily require being BFF’s). However, association representatives may try to convince a homeowner that they are letting their neighbors down by not obeying a violation notice. However, a friendly relationship with others subject to the same covenants and rules can serve as a reminder that one’s neighbors usually are not crazy about the rules enforcement either.
- Promptly and Politely Assert Rights. Upon receipt of a notice of rule violation, many homeowners are often tempted to ignore it. If it is not reasonable or easy to understand, is it really a threat? Unfortunately, notices are usually followed by a notice for a hearing where a fine may be determined. The owner is entitled to be present at this hearing and be represented by an attorney, if desired. After that, the association may attempt record a lien in land records, file a lawsuit at the courthouse, or both. A homeowner’s rights are easier to defend earlier in the process than after something adverse happens. board directors or property managers may tell an owner that they must comply with the notice of rule violation in order to “protect the property values” in the Association. However, home buyers rarely ever compare the rules and regulations with the appearances of the homes when they are conducting their home buying process. An association covenant that a home is encumbered with does not improve its value. In fact, it represents a future liability in the form of monthly assessments.
If you are a homeowner and you are unsure whether your association is properly conducting its rule enforcement proceeding against you, promptly contact a qualified attorney to protect your rights.
November 11, 2014
Today, on Veterans Day, I would like to honor veterans who have served our country. Many of them return to civilian life and make additional, substantial contributions to their communities. A few go on to struggle to protect the property rights of themselves and others. In some cases, HOA’s may even attempt to foreclose on home of a veteran for flying the flag of the United States.
Larry Murphree’s Experience in Florida with Association Flower Pot Rules:
Larry Murphree is a U.S. military veteran who owns a residential unit in the Tides Condominium at Sweetwater in Florida. In 2011, he began to display a small 11″ x 17″ flag in a flower-pot outside his front door. His Association asserted fines against Mr. Murphree and the parties found themselves in litigation. The parties reached a settlement wherein Murphree agreed to display the flag in accordance with the condominium instruments. I first heard Mr. Murphree’s story on an October 18, 2014 interview by Shu Bartholomew on her radio show and podcast, “On the Commons.”
After the settlement, the Association adopted new guidelines which permitted display of one american flag, but only in a bracket near the street number plate. The new rules prohibited owners from displaying the flag during bad weather or at night. The military and other U.S. government facilities have more rigorous etiquette for display of the American flag than what is required of private citizens. The new rules the Tides Condominium may have been an attempt to shame Mr. Murphree for not following the military flag etiquette, which a private citizen is not ordinarily required to observe.
The Association also adopted new rules for potted plants. The Association only allowed one pot, which may only contain plants and a maximum of three self-watering devices. This Association found it is necessary to regulate what items may be placed in flower-pots on the doorstep of unit owners. Undoubtedly, there are cases where neighbors erect obstructions which infringe upon the rights of their neighbors. However, Mr. Murphree’s flag does not appear to be an albatross. At Mr. Murphree’s website, http://letmeflytheflag.com, you can see the small flag display from the street view.
Mr. Murphree decided to continue to display the American flag in the flower-pot. The Association began to assess fines a $100.00 per day. They now want to foreclose on his property for the unpaid fines. The parties are in litigation again. On March 32, 2014, the U.S. District Court for the Middle District of Florida published an opinion deciding, among other things, that the First Amendment protections do not apply against non-governmental entities like a homeowner’s association. The Court also ruled that the Freedom to Display the American Flag Act of 2005 does not provide for a right to sue a property association. It is my understanding that the litigation currently continues in Florida state court.
What About Virginia?:
In 2009, retired army veteran Colonel Van Thomas Barfoot’s association ordered him to remove a 21-foot flagpole that he used to fly the American flag. Mr. Barfoot earned the Medal of Honor and served in World War II, Korea and Vietnam. Barfoot won his dispute, but not without help from two senators and a former governor. Ted Strong discusses Mr. Barfoot’s story in a November 2, 2014 article in the Richmond Times-Dispatch.
In Virginia, both the Property Owners Association Act and the Condominium Act contain provisions relating to the federal Freedom to Display the American Flag Act of 2005. These state laws disallow associations from prohibiting owners, “from displaying upon property to which the unit owner has a separate ownership interest or a right to exclusive possession or us of the flag of the United States” where such display complies with federal law. However, the statutes do allow the association to:
establish reasonable restrictions as to the size, place, duration, and manner or placement or display of the flag on such property provided such restrictions are necessary to protect a substantial interest of the association.
In condominiums, balconies, patios and doorways are usually what’s called “limited common elements.” This would limit the usefulness of these legal protections to a homeowner desiring to display the flag in such areas.The statute does not define what “substantial interests” an association may have that would need to be protected from display of the American flag. The provisions state that the association bears the burden of proving the legitimacy of the restrictions. It is remarkable that the same government that authorize a HOA’s exercise of power would allow them to restrict or forbid a citizen’s right to display that government’s flag. The Richmond Times-Dispatch article does not discuss what federal or state statutes played a role in the outcome of Mr. Barfoot’s case.
Associations become more prevalent each year. Kirk Turner, Director of Planning of Chesterfield County told Mr. Strong that around 100% of new developments of at least 20 lots have mandatory associations: “From our standpoint, we actually encourage the creation of an HOA.” Henrico County Attorney Joseph Rapisarda explained: “To me, the HOA is like a mini-government.” If a HOA is indeed a “mini-government,” then a homeowner might expect constitutional protections normally provided against governmental intrusion. From the owner’s perspective, if the HOA has the authority of a mini-government but not the legal restrictions, that makes homes subject to association covenants less valuable. In her interview of Mr. Murphree, Ms. Bartholomew observed that to the owner, the value of property is what the owner does with the property, not what it would sell for. I can see how difficult it might be for a comparable sales analysis to account for the exercise of association powers.
If your association is taking action against you for display of the American flag or any other political or religious symbols, contact a qualified attorney.
October 16, 2014
How are Virginia homeowners to evaluate competing threats from their mortgage bank and property association foreclosure? For many years, owners unable to pay their bills associated with their homes have focused on the threat of foreclosure from their mortgage lender.
Homeowners’ Varying Obligations to Lenders and Property Associations:
The conventional wisdom, in Virginia at least, is that homeowners should focus on keeping bills paid in the following priority: (1) local property taxes (have priority as liens, and are non-dischargable in bankruptcy), (2) mortgage lenders (monthly payments largest) (3) the monthly dues and special assessments of the homeowners association or condominium unit owners association. These notions are reinforced by mortgage lenders who escrow property taxes but not association assessments. Should owners continue to follow this in making decisions in the face of risk of payment default? Tax liens will certainly continue to enjoy a super-priority. However, a unit owner’s rights and responsibilities to their community association are of a different nature than bank mortgages. The rights of Associations to fix dues, special assessments and fines change. The General Assembly can amend the statutes. Courts make new legal interpretations. The owners can vote to change the Association Bylaws. Although the Association has significant influence over a unit owner’s rights, its lien is often overlooked to the detriment of many owners. What foreclosure, rights, if any, may an Association use to enforce its assessments? Florida and Nevada tend to be bellwethers of national trends in property associations because of their extraordinary number of condominiums and other associations. One recent case illustrates the chaos that may arise from these competing claims.
Las Vegas Foreclosure Contest Between HOA, Bank and U.S. Government:
On September 25, 2014, Judge Gloria Navarro of the U.S. District Court for Nevada issued an opinion providing clues to how Virginia homeowners may one day find themselves caught up in legal crossfires between banks and HOA’s. Emiliano & Martha Renteria owned a single-family home in Las Vegas that was a part of the Washington & Sandhill Homeowners Association (“HOA”). This is not a condominium but the issues are analogous. In September 2009, they defaulted on their Bank of America mortgage. Like Virginia, Nevada allows non-judicial foreclosure proceedings wherein title is transferred transactionally. The Court becomes involved if there is a dispute. In July 2012, the Bank-appointed Trustee foreclosed on the property. Five months later they rescinded that foreclosure. In May 2013, the Bank completed a foreclosure (in a do-over), claiming title to the property. On May 17, 2013 the Bank conveyed the home to the U.S. Department of Housing & Urban Development in a claim under the Single Family Mortgage Insurance Program.
To make matters more confusing, the HOA pursued its own foreclosure proceedings on the property at the same time to enforce its lien for the Renteria’s failure to pay their assessments. Most of the procedural aspects of Nevada condominium foreclosures are substantially different from Virginia. The HOA purchased the Renteria property at its own foreclosure sale in May 23, 2012, before the Bank’s first foreclosure sale. In July 2012, the HOA filed a release of its lien. A couple of months later, the HOA resumed its foreclosure, asserting an unpaid assessment lien of $4,983.00, this time against the Bank as owner. In October 2012, the HOA reacted to the Bank’s conveyance of the property to HUD, asserting a lien of $1,250.00 against the government. Note that this association foreclosed on a single-family home in an urban area to satisfy only $1,000-$5,000. When those demands went unpaid, the HOA abandoned this position. On October 9, 2013, the Association filed a federal lawsuit claiming ownership pursuant to the May 23, 2012 sale. In the lawsuit, the HOA disputed the Bank and HUD’s claims of title.
On September 18, 2014, the Supreme Court of Nevada ruled in a similar case that a HOA foreclosure extinguishes a mortgage lien such as that held by the Bank. Local readers may be interested that on August 28, 2014, the D.C. Court of Appeals reached a similar decision. In Nevada, Judge Navarro discussed how it is illogical for the HOA to simultaneously claim to be the rightful owner of a property and also assert an assessment claim against another party as owner. She found that under Nevada law, the Association was not permitted to waive its right to extinguish the Bank’s prior lien through foreclosure. The Court decided that the HOA’s subsequent release of the lien against the Renterias and new liens against the Bank and HUD were not valid because it had no right to change course. Had an individual investor purchased the property from the Bank’s foreclosure following the HOA’s release, he would have found himself caught up in this mess. The Court did not discuss whether these latter actions also created unwaivable rights. Judge Navarro ultimately decided that the HOA claim of title violated the U.S. Constitution. She dismissed of the Association’s lawsuit on the grounds that the HUD enjoyed an interest in the property under the Single Family Mortgage Insurance Program that could only be released under federal law. The Property Clause of the Constitution states that, only “Congress has the Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States.” Since the Bank’s mortgage was HUD-insured, a HOA cannot violate the government’s rights as insurer. This case is currently on appeal.
All of this caught my attention because it illustrates how HOA’s and Banks may use nonjudicial foreclosure procedures to duel over residual rights in distressed real estate. This case illustrates, if nothing else, why title examination and insurance are valuable investments to individual investors who may find themselves caught up in such a case. Well-advised home buyers must study the association bylaws and other disclosures carefully before waiving the contingency. If legal developments like this continue, associations will likely require a substantial legal reform. Otherwise, property values, especially condominiums will be in jeopardy, banks may restrict financing in fear of HOA lien priority, and investors may lose interest.
Will a Reordering of Rights of Banks and HOA’s Come to Virginia?
The competing rights of HOA’s and Banks is a critical aspect of the foreclosure crisis. On October 2, 2014, Nevada real estate attorney Bob Massi was interviewed on cable news about trends in HOA foreclosures. He predicted that lenders will start requiring borrowers to make their HOA payments into a bank escrow so that the lender’s foreclosure rights are not prejudiced by unpaid assessments.If this becomes a reality, mortgage servicers will become collection agents for associations. What remedies will owners have with respect to the escrow if they have disputes with the association over a fine? Will lenders change their underwriting guidelines to make loans more difficult for property subject to association covenants?
I expect that the issue of HOA lien priority will soon return to the Virginia Supreme Court and General Assembly. What responses to these trends can homeowners expect in Virginia? In a later installation in this new blog series about Association Foreclosure, I will discuss how a 2003 Supreme Court of Virginia decision presently limits a Condominium Association’s remedies for unpaid assessments. This Virginia opinion limits the rights of Virginia’s community association to disturb a lender’s rights under a purchase money mortgage. Given these new developments in Nevada and D.C., this 11-year-old opinion is important to every owner, association and lender with an interest in Virginia condominiums.
If you are a lender and have questions whether an association’s lien has priority over your own mortgage, contact qualified legal counsel. If you are an owner and have questions whether an attempt by your association to enforce a lien on your property runs afoul of the law or your condominium instruments, contact a real estate attorney to protect your rights.
Case citation: Washington & Sandhill Homeowners Association v. Bank of America, et al., No. 2:13-cv-01845-GMN-GWF (D.Nev. Sept. 25, 2014)(Navarro, J.).
Thanks to Shu Bartholomew, host of the weekly property rights radio show “On the Commons,” for letting me know about the Bob Massi interview.